Performance reviews, pay raises, and work anniversaries
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by Rick Joi Rick Joi is the founder of The Workiversary Group and author of the award‑winning book, Inspiring Work Anniversaries. |
Once you’re communicating work anniversary dates within your organization, the second most important thing to do is to effectively communicate performance review and pay raise timing to employees.
This one isn’t glamorous, but if you don’t get this right, it can undermine everything else you do.
Does your organization reliably do performance reviews?
If so, when?
Do all employees know when?
If your organization doesn’t reliably do performance reviews or if employees don’t know how performance reviews work, then many new employees will expect a performance review on their work anniversary.
When the review and/or pay raise doesn’t happen on their work anniversary, it will set up an awkward dynamic where they don’t know if they should be so forward as to ask or not or who to ask. This angst isn’t a good experience.
If you don’t do reviews or raises on work anniversaries
This is the best case scenario.
But, while you know that you don’t do raises or reviews on work anniversaries, that doesn’t mean that all of your employees know this.
It is vital to the success of your work anniversary program that you communicate that reviews and pay raises do not happen on work anniversaries.
And by communicate, we don’t mean that it was communicated once and employees could know.
Instead, ask yourself, was it repeatedly communicated in multiple ways and channels so many times that it would be really, really hard for an employee not to know?
If you do do reviews and/or raises on work anniversaries
Stop.
As you’re aware, reviews and pay raises are often emotionally fraught. Employees typically want and/or expect better review ratings and bigger raises than they get.
The majority of your employees will come to subconsciously associate their work anniversaries with disappointment.
Obviously, that’s not what you want.
If you want employees to have great work anniversaries, then you need to move your organization’s pay raises and reviews to not coincide with work anniversaries.
For pay raises, the best approach is to decide on raises for everyone all at once, prior to the start of each new budget year and taking effect when the new budget year starts.
This approach is especially convenient for budgeting. It’s also convenient for deciding how to divide up limited pay increase resources according to relative merit. For employees who haven’t been with the organization for a full year, you can decide to not give them raises or give them a prorated increase.
However, while the all-at-once approach is great for pay raises, it’s not great for performance reviews. Doing all of the performance reviews at once is an incredible burden on managers, especially those with many direct reports. Under this circumstance, managers can’t give each review an appropriate amount of attention. Managers will view the whole process as a chore driving long hours that are disrupting their personal lives, and employees will pick up either overt or subconscious negative signals from their frustrated managers.
Some readers will be confused at this point because they believe that performance reviews and pay raises need to happen together and the pay raise is based on the performance review. It turns out that doing reviews and pay raises together is not at all required.
Doing them together can do a fair bit of harm, because employee performance is often only a small part of what drives the size of the raise. Company performance and the market rate for a particular job are typically bigger components of pay raises. A company that’s losing money isn’t going to give big raises. Also, a company can’t keep giving big pay raises to a great performer if they stay in a job where new hires can be brought in for lots less. Doing performance reviews at the same time as pay raises will lead to a lot of disappointment.
Compensation theory is beyond the scope of this blog, but I’d highly recommend the book Catalytic Coaching by Gary Markle. Beyond recommending decoupling pay raises from reviews, it also has great perspective on overhauling the review process so that it shifts from a backwards-looking judgmental exercise to a forward-looking growth-oriented coaching experience.
So if you aren’t going to do reviews all at once and you’re not going to do them on each employee’s work anniversary, when do you do them?
For most organizations, it’s best to do annual reviews at a six-month offset from the work anniversary. This scatters them throughout the year so that they’re just an ongoing part of the job of a manager rather than a sudden enormous burden. It also has the elegant benefit of meaning that new hires get a review after six months on the job rather than having to wait a full year. This is a reasonable amount of time to determine an employee is a poor fit and take action to not let the problem fester. For employees that are working out well, the retrospective on their time will be appreciated.
While the above is best for most organizations, there are exceptions. If an employee is typically assigned to a series of single longer-term projects, then doing reviews at the conclusion of each project can be much more natural. Also, there are organizations that have leaned heavily into a methodology of providing much more frequent feedback through one-on-ones or a rigidly well-defined career progression path where the concept of an annual review just doesn’t make sense anymore.
But, no matter how you move pay raises and reviews away from work anniversaries, the important thing to do is to communicate how it works repeatedly so that every employee is very clear that they should not expect a raise or a review on their work anniversary.
If you can’t stop doing reviews and/or raises on work anniversaries
While the previous section was very clear that raises and reviews should not happen on work anniversaries, you might just not have the authority to make that change. Or, while you might be able to change it, that just might not be a priority right now.
Here are some tips on how to make the most of this situation.
For pay raises:
Don’t be late. Decide on the pay raise before the work anniversary. Communicate the pay raise before the work anniversary. Put the pay raise into effect for the pay period that includes the work anniversary, not the pay period after the work anniversary. If for any reason, you are late, then retroactively correct it.
Prior to sharing the amount of the pay raise, be sure to communicate that two huge components of pay are outside of the employee’s direct control: market rates and company performance. Employees can be enormously appreciated and do great work, but if they’re at the top of the market pay scale for their role and/or the company is having any sort of financial struggles, then their pay raise will be smaller than might be expected if one was just thinking about job performance in isolation.
For annual reviews:
Don’t be late. Write up and deliver the review prior to the work anniversary. If for any reason this isn’t possible, communicate before the work anniversary when it will be.
Shift annual reviews from rating to coaching. Since you can’t alter the timing, this may not be an option, but in case it is, consider shifting your review process from a standard backwards-looking “rating” methodology to a forward-looking career coaching methodology. Rating methodologies are generally coming from a scarcity mindset where everyone is judged and compared and shortcomings are called out. Career coaching methodologies have an abundance mentality and are about how the employee wants to grow their career. Career coaching can actually be a positive enough experience that it is something employees look forward to on their work anniversary.
Wrap up
This article can be summed up by these three rules
Make sure employees know when performance reviews and raises happen at your organization.
Over-communicate #1
If at all possible, don’t do performance reviews or raises on or near employees’ work anniversaries.
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